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7 The Climate Change Problem Electricity generation is the main source of carbon emissions (25% of carbon emissions globally), followed by deforestation & land use (24%), industry (21%) and transportation (14%) IPCC estimates concentrations of 450 ppm or less are needed to keep temperature increase below 2 o C Meeting currently proposed carbon targets requires large emission reductions

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9 Innovation and Climate Change Other than reducing emissions, what else can be done? Geoengineering Change environment to offset emissions Seen as costly and risky Increase removal of CO 2 Large increases seem unlikely

10 Innovation and Climate Change As a result, mitigation will play an important role With current technologies, these reductions will be costly Carbon free energy sources are currently more expensive However, technological advances can lower these costs

11 Potential Energy Sources Energy is a difficult issue for the following reasons 1. Multiple economic, environmental, and security aims Limiting costs increases usage (and emissions) and reduces funds for investment in infrastructure. Increasing domestic supply unpopular if it involves drilling in environmentally sensitive places. Increasing supply via nuclear raises security concerns. 2. All sources face some limitations 3. Large embodied capital investment and long turnover times of world s energy supply Replacement cost of today s global supply system is $12 trillion Typical turnover times are years

12 Potential Energy Sources To understand the potential of renewable energy for electricity generation, it is important to understand how the electric grid works Electricity cannot be stored. What goes on the grid must match what comes off Because of this, wholesale prices can vary by a factor of 10 or more within a given day Balancing authorities ensure electricity demand and supply are balanced (e.g. New York Independent System Operator (NYISO)) Calculate who can provide the power needed at lower cost Have plants adjust every five minutes to keep the system balanced Use weather forecasts to try to project production from wind and solar

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14 Potential Energy Sources Two types of generation sources: Dispatchable: operator has temporal control over. Can decide when to shut off or turn on. Intermittent: Production varies due to exogenous factors, such as amount of wind blowing. Generation is out of control of the operator However, these plants can be shut down easily, so there is an upper limit on generation

15 Potential Energy Sources Even when the owner has control, some plants can be switched on and off more quickly than others. Ramping rates: how quickly plants can change the level of output. There are also differences in often the plant must shut down for required maintenance. Flexible sources with rapid ramping ability include: Gas fired peaker plants Low fuel efficiency, but are flexible Also have low start up costs Hydroelectric System is designed to meet demand extremes. Some peaker plants may only run a few days a years. Levelized cost of plants that will be run most frequently when demand is high must be adjusted because the power produced is more valuable If used during periods of peak demand, wholesale prices of electricity will be higher

16 Potential Energy Sources Generation costs Costs are typically measured using levelized cost of electricity Levelized cost is the constant price for power that would equate the net present value of revenue from the plant s output with the net present value of the cost of production. Accounts for the fact that many of the initial costs are up front capital costs, particularly for renewables. Key assumptions that lead to different estimates: Inflation rates Real interest rates How much the generator will be used Productivity of the generator» E.g. how much will it be used and how much electricity will it produce» Future generation particularly relevant for renewables, as may depend on quality of the site Future input costs (particularly fuel) Future market prices

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18 Source: International Renewable Energy Agency, Renewable Energy Costs in 2017

19 Potential Energy Sources Limitations to levelized cost estimates Levelized cost of plants that will be run most frequently when demand is high must be adjusted because the power produced is more valuable If used during periods of peak demand, wholesale prices of electricity will be higher

20 Potential Energy Sources Limitations to levelized cost estimates Intermittent sources are the least dispatchable Generation is out of control of the operator Thus, the time of day affects the value of power generated Solar produced during day, which coincides with peak demand» On January 20, 2015, Germany produced just 2.5 GW of electricity from solar and wind. Consumed 77 GW that day» In early June 2015, produced 42 GW from solar and wind Because marginal cost of renewables is 0, it is offered to wholesale markets at very low costs Thus, high wind production pulls down wholesale costs, hurting other producers Because coal is cheaper than gas, gas turbines in Germany sit idle while coal production has increased

21 Source: California ISO, What the duck curve tells us about managing a green grid

22 Potential Energy Sources Limitations to levelized cost estimates Competition from other sources has hurt nuclear power Nuclear can also place low bids, because most costs are fixed costs However, because of these fixed costs, note that nuclear s levelized costs are larger Competition from natural gas and wind is forcing nuclear plants to retire early» Some states, such as NY, are thus considering subsidizing nuclear power plants to compensate them for producing zero carbon electricity Nuclear supporters argue that other carbon free sources, such as wind and solar, benefit from subsidies

23 Potential Energy Sources Adjusting levelized costs Compare levelized cost to average wholesale value of power the source delivers A recent study by the Brookings Institution considers the value of fuel that renewables displace and the emissions avoided A 1 MW wind farm running at 25% capacity only displaces about 0.23MW of a coal plant running at 90% capacity Thus, need 4 wind farms to displace a similar sized coal plant

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25 Potential Energy Sources Policy question: should households be rewarded for distributed generation Distributed generation is producing electricity at the consumer site, such as with solar PV panels Electricity generated reduces the consumer s bill, since they take less power off the grid Should they also be paid for any surplus power that they contribute to the grid?